AeroVironment Inc (AVAV) Q4 2023 Earnings Call Transcript

Good day and thank you for standing by. Welcome to the AeroVironment Fiscal Year 2023 Fourth Quarter and Full Year Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today Jonah Teeter-Balin with AeroVironment. Please go ahead.

Thanks, and good afternoon, ladies and gentlemen. Welcome to AeroVironment's fiscal year 2023 fourth quarter and full year earnings call. This is Jonah Teeter-Balin, Senior Director of Corporate Development and Investor Relations. Before we begin, please note that certain information presented on this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve many risks and uncertainties that could cause actual results to differ materially from our expectations. Further information on these risks and uncertainties is contained in the company's 10-K and other filings with the SEC, particularly in the Risk Factors and forward-looking statements sections of these filings. Copies are available from the SEC on the AeroVironment website or from our Investor Relations team. This afternoon, we also filed a slide presentation with our earnings release and posted the presentation to the Investors section of our website at avinc.com under Events and Presentations. The content of this conference call contains time-sensitive information that is accurate only as of today, June 27th, 2023. The company undertakes no obligation to make any revision to any forward-looking statements contained in our remarks today or to update them to reflect the events or circumstances occurring after this conference call. Joining me today from AeroVironment are Chairman, President, and Chief Executive Officer, Mr. Wahid Nawabi; and Senior Vice President and Chief Financial Officer, Mr. Kevin McDonnell. We will now begin with remarks from Wahid Nawabi. Wahid?

Thank you, Jonah. Welcome, everyone, to our fiscal year 2023 fourth quarter earnings conference call. I will start by summarizing our performance and recent achievements, after which, Kevin will review our financial results in greater detail. I will then provide information related to our expectations for fiscal year 2024, after which, Kevin, Jonah and I will take your questions. I'm pleased to report that the fourth quarter results exceeded most of our expectations, and we set records across many key financial metrics. Our key messages, which are included on slide number three of our earnings presentation are as follows. Fourth quarter revenue rose to $186 million, a 40% increase compared to the fiscal year 2022 fourth quarter, while the product revenue nearly doubled year-over-year to just under $142 million. Second, for the full year, revenue increased to $541 million versus $446 million last year, representing 21% growth. This makes it our sixth consecutive year of top line growth. Third, our funded backlog also doubled from fiscal year 2022 to set another record at $424 million. This backlog was driven by more than $750 million in bookings throughout fiscal year 2023, reflecting strong demand for our solutions led by our small UAS or SUAS, and Tactical Missile Systems or TMS businesses. And fourth, given recent performance trends and our visibility into upcoming quarters, we're providing fiscal year 2024 guidance that reflects nearly 20% growth in revenue, higher margins and improved bottom line results. The fundamentals of our business are strong, and we're well-positioned for significant expansion and value creation in fiscal year 2024 and beyond. The improvement in the fourth quarter revenue was primarily due to higher SUAS and TMS sales, which were up 60% and more than 100% respectively, compared to the prior year period. These results reflect ongoing demand for our Switchblade and Puma products. Gross margin for the fourth quarter was $68.4 million, an increase of 41% versus last fiscal year's $48.6 million. Our gross margin as a percentage of sales was approximately 37% in both periods. As previously discussed, we expect gross margins to remain strong in fiscal year 2024, as our revenue mix continues to shift to more favorable product sales. As Kevin will cover in a moment, our pro forma bottom line profitability metrics were also much stronger this quarter. This improvement was primarily driven by higher revenues, which more than offset increased operating expenses. This quarter caps a record year for AeroVironment. By carefully managing through challenges of the past few years such as supply chain constraints, labor shortages, and inflationary pressures, we have accelerated our growth and success. Given our current backlog and robust demand for the company's broad portfolio of innovative unmanned solutions, we stand at the inflection point of a new phase of growth. I want to thank our investors for their continued support, especially as we enter this new chapter. As always, we're committed to delivering value to our shareholders and visibility into our progress. Finally, we're deeply honored and extremely proud of the growing level of assistance we have provided to our country and allies including Ukraine. Before we discuss each segment, I want to address the recent news that AeroVironment was not selected by the US Army to proceed further with Increment 2 of the Future Tactical Unmanned Aircraft Systems, otherwise known as FTUAS. While we're disappointed, we have fully assessed the US Army's evaluation process and submitted a request for further clarification. We remain confident that the JUMP 20 UAS is the most versatile and cost-effective solution in the Group 2, 3 UAS market today and will continue to focus on meeting the current needs of our customers. We are humbled and honored to support the Ukraine defense efforts as the only Group 2, 3 UAS solution named in the recent US aid package. The FTUAS Increments we have been awarded to date did not comprise significant revenue for AeroVironment. We recorded a non-cash charge of $190.2 million in the fourth quarter related to the MUAS business, and Kevin will discuss its details further shortly. Importantly, the Army's decision will not have a material impact on near-term revenue growth. As we look ahead, we will focus on areas where we can improve to ensure we meet our customers' needs. Further, we remain focused on winning other key programs by continuing to leverage the strength of our robust portfolio of innovative unmanned solutions. Despite our exit from FTUAS Increment 2, we remain bullish on our Medium UAS or MUAS product line. The JUMP 20 stands apart in its ability to perform in contested environments with an unmatched capacity to carry payloads, and we believe it's the best Group 2, 3 solution on the market today. There are multiple domestic and international opportunities which we are currently pursuing that present significant growth potential in the coming years. Now shifting gears to other product lines. Our SUAS business delivered a record year of performance on the back of our largest-ever foreign military sales award and support of Ukraine. We're proud that our Puma systems have consistently proven themselves on the battlefield and are providing scouting and support for all US supplied artillery weapon systems deployed in Ukraine. We expect SUAS revenue to remain strong in fiscal year 2024. We have also launched several new products and additional enhancements to our SUAS portfolio and expect sales of these solutions to be a meaningful component of future revenues. Our TMS business product line represents a significant growth opportunity for the company. Total TMS revenue for the quarter more than doubled year-over-year, but this is only the start. The conflict in Ukraine and our Switchblade success on the battlefield has accelerated the global trend towards increased adoption of loitering munitions. We now have orders from four allied nations. More importantly, the US government has recently approved us to market and sell Switchblades to nearly 50 allied countries, up from 20 countries last year. Given the current level of global interest, the record backlog, and growing demand for Switchblade, we expect our TMS business to be a leading growth driver for the company moving forward. Our Unmanned Ground Vehicles or UGV product line achieved record levels of performance in the fourth quarter. Similar to our TMS segment, UGV revenue more than doubled year-over-year, resulting in the unit's best year since its inception. We're also making solid progress providing telemax and tEODor ground vehicles to Ukraine under an accelerated schedule, and these vehicles are performing well on the battlefield. We expect another growth year for this business in fiscal year 2024. Our HAPS product line continues to make solid progress in the development of next-generation Sunglider, a successfully commercialized stratospheric-based telecommunication service in partnership with SoftBank. We also recently received our first contract from the US DoD for this unique capability and are actively pursuing multiple other defense opportunities. Given the current conflicts around the world, we believe that the defense market for HAPS represents a multi-billion dollar long-term growth opportunity, and we're well positioned to supply this large market with our highly differentiated Solar HAPS solutions. Finally, our MacCready Works Advanced Solutions continues to establish AeroVironment as a leading global supplier of AI, machine learning, and autonomy-powered unmanned systems. With the support of this team, AeroVironment is designing systems that will anticipate and evolve with the needs of our military. These include expandable autonomous capabilities that allow our UAS to continue operations without persistent radio link and advanced artificial intelligence and machine learning algorithms that can sense, analyze, and navigate the battle space. We have deployed some of these capabilities within our product lines already and expect more in the future. This segment also continues to pursue new and exciting lines of business such as space robotics and contested logistics that could become new business segments of their own for AeroVironment. MacCready Works grew significantly in the fiscal year 2023, and we expect to see additional top line growth in fiscal year 2024. Before turning the call over to Kevin, I would like to note that starting in Q1 of this fiscal year, AeroVironment will define our segments differently to reflect the broader nature of our products and services and their associated end markets. Going forward, we will provide color on three segments. Combining our SUAS, MUAS, and UGV product lines will form a new Unmanned Systems segment. Our Tactical Missile Systems will now be known as Loitering Munition systems, and our MacCready Works segment will include the current MacCready Works operations along with HAPS and other customer-funded R&D programs. We look forward to sharing more on this new segmentation next quarter. With that, I would like to now turn the call over to Kevin McDonnell for a review of the fourth quarter financials. Kevin?

Thank you, Wahid. Today, I will review the key highlights of our fourth quarter and full year fiscal 2023 performance, during which I will refer to our press release and earnings presentation available on our website. We concluded the year exceptionally strong in bookings, backlog, revenue, adjusted gross margins, and adjusted EBITDA. Wahid will provide guidance for FY'24 shortly, but we are positioned for robust revenue and EBITDA growth in FY'24. However, as Wahid mentioned, we recorded non-cash charges in the fourth quarter related to our Medium UAS business, which I will address shortly. Let me start with the revenue details for the quarter. We generated a record revenue of $186 million in the fourth quarter of fiscal 2023, reflecting a 40% increase from the same quarter in fiscal 2022. Slide five of the earnings presentation breaks down revenue by segment. Our largest segment, Small UAS, achieved revenue of $94.6 million, up from $59.2 million last year. We experienced a healthy mix of business within Small UAS, with shipments to Ukraine comprising just over 40%, while the rest came from new customers and upgrades to existing ones. This indicates strong demand beyond Ukraine. Tactical Missile Systems (TMS) reported revenue of $42.5 million compared to $20.2 million last year during Q4. Notably, we received $125 million in orders for TMS products in Q4, bringing the annual total to over $230 million, underscoring robust domestic and global demand for the Switchblade products. Revenue from other segments, including UGV, HAPS, and MacCready Works, rose year-over-year to $40.6 million from $30.1 million in the fourth quarter of fiscal 2022. Our Medium UAS segment finished with revenue of $8.3 million, showing a 33% decrease from the same quarter of fiscal 2022, attributed to lower COCO service revenue. For the year, we achieved record revenues of $540.5 million, representing a 21% increase compared to fiscal 2022, alongside record bookings exceeding $750 million. This growth reflects strong global demand for our products. Regarding gross margins, slide five of the earnings presentation highlights the breakdown between product and service revenues. In the fourth quarter, product revenues constituted 76% of total revenues, an increase from 56% in the same quarter of the prior year. This shift was anticipated due to the significant increase in sales of Small UAS and TMS products. Slide six displays the trend of adjusted product and service gross margins, while slide 12 reconciles GAAP gross margins to adjusted gross margins, excluding intangible amortization and other non-cash purchase accounting items. In Q4, GAAP gross margins held steady at 37%, the same as the previous year's fourth quarter. Conversely, non-GAAP adjusted gross margins slightly decreased to 39% from 40% last year. Adjusted gross product margins for the quarter were 47% compared to 49% in the fourth quarter of the previous fiscal year, with the year-over-year decline attributable to a higher mix of TMS revenue. Adjusted service gross margins in the fourth quarter were at 13% versus 28% during the same quarter last year, mainly due to $4.4 million in accelerated depreciation charges related to our COCO service assets. For the entire year, GAAP gross margins ended at 32%, consistent with last fiscal year, while adjusted gross margins decreased from 36% to 35%, primarily due to $14.5 million of accelerated depreciation from our Medium UAS COCO assets. We anticipate adjusted gross margins improving to the high 30s in FY'24, thanks to a shift towards more product revenues and a normalization of service margins. Regarding adjusted EBITDA, slide 13 shows the reconciliation of GAAP net loss to adjusted EBITDA. In the fourth quarter of fiscal 2023, adjusted EBITDA was $46 million, marking an increase of over 60% from last year, driven by higher sales volumes, partially offset by increased SG&A expenses and R&D investments. For the full year 2023, adjusted EBITDA reached $90 million, representing a 43% increase from last year. SG&A expenses, excluding intangible amortization and acquisition-related expenses for the fourth quarter, were 13% of revenue, and 15% for the fiscal year 2023, down from 16% in the previous year. R&D expenses for the fourth quarter were 9% of revenue and 12% for the full fiscal year 2023. We plan to sustain R&D investment in the 10% to 12% range as we develop new products and enhance existing ones to meet our customers' evolving needs. Now, regarding GAAP earnings, during the fourth quarter, the company experienced a net loss of $160.5 million, which included $190.1 million in non-cash charges related to the Medium UAS business. Of this total non-cash charge, $34.1 million was due to the acceleration of intangible asset amortization related to a specific customer, reported as SG&A expense in the quarter. The remaining $156 million of the total non-cash charge reflected a goodwill adjustment from the revaluation of Medium UAS goodwill following the Arcturus acquisition, which was impacted by the recasting of future cash flows due to the FTUAS Increment 2 loss. While we remain optimistic about the Medium UAS business in both the short and long term, these adjustments were necessitated by current business conditions. Slide 10 includes the reconciliation of GAAP and adjusted or non-GAAP diluted EPS. The GAAP EPS loss was $6.31 per share for the quarter and a loss of $7.04 per share for the year, both impacted by the aforementioned non-cash charges. In terms of non-GAAP EPS, the company reported adjusted earnings per diluted share of $0.99 for the fourth quarter of fiscal 2023 compared to $0.12 per diluted share for the same quarter last year. The full year adjusted EPS was $1.26 per share, up from $1.06 per share in fiscal 2022. Now, turning to our balance sheet, total cash, restricted cash, and investments at the end of the quarter amounted to $156.5 million, an increase of $51.9 million from the third quarter of fiscal 2023. Additionally, we reduced our debt by over $50 million during fiscal 2023. We did experience an increase in working capital during the fourth quarter, primarily driven by higher accounts receivable resulting from increased sales volume. As indicated in prior quarters, we expect continued increases in inventories and other working capital to support higher business levels and mitigate risks associated with supply chain issues and long lead times. We maintain a strong balance sheet with over $150 million in cash, restricted cash, and investments and a $100 million working capital facility with no outstanding balance. Now I'd like to pass it back to Wahid.

Thanks, Kevin. The macro-environment continues to support greater adoption of unmanned solutions. The Ukraine conflict has accelerated existing trends towards greater adoption of distributed solutions such as small drones and loitering munitions by demonstrating their effectiveness against well-equipped adversaries. These solutions are highly impactful, but typically far less expensive, have shorter lead times and enable an agile force structure compared with larger traditional manned systems. Further, these solutions enable countries with smaller defense budgets to secure effective defensive capabilities and provide a deterrent to adversaries. We believe these global trends, combined with our market-leading technology-driven unmanned solutions will support our growth in fiscal year 2024 and for years to come. I'm now pleased to provide our guidance for fiscal year 2024 shown on slide number seven, as follows. We anticipate revenue of between $630 million and $660 million. We forecast net income between $50 million to $58 million or $1.91 per diluted share to $2.21 per diluted share. Non-GAAP adjusted EBITDA of between $110 million and $120 million and non-GAAP earnings per diluted share, excluding acquisition-related costs, amortization of intangible assets and other one-time expenses of between $2.30 and $2.60. We expect to deliver adjusted EBITDA of between 16% and 18% of revenue for the full fiscal year, while R&D investment is anticipated to remain between 10% to 12% of revenue. Our funded backlog at the end of fiscal year 2023 was a record $424 million. As a result, visibility to the midpoint of our fiscal year '24 revenue guidance range is at 78%. This visibility sets us up for a strong fiscal year 2024. We expect first half revenue to represent almost 50% of the full fiscal year. Further, Q1 revenue should account for nearly 40% of first half revenues. Before turning the call over for questions, let me once again summarize the key points from today's call. First, we delivered record fourth quarter performance and met or exceeded our expectations. Second, full year revenue was also a record, marking our sixth consecutive year of top line growth. Third, our funded backlog is at record levels, reflecting strong global demand for our solutions, and fourth, the fundamentals of our business are as strong as they've ever been, and we expect fiscal year 2024 to be yet another record-setting year for the company. I'm also excited to inform you that Admiral Phil Davidson recently joined our Board of Directors. Admiral Davidson's outstanding qualifications and credentials speak for themselves. His guidance, informed by his extensive and relevant military expertise will be key in enabling us to better support our customers while capitalizing on the significant opportunities in front of us. I would like to thank our talented team for their dedication and hard work in helping our customers achieve their vital missions. Based on their perseverance, the faith entrusted in us by our customers, and the ongoing support of our investors, we believe we're in the best shape ever for a record-setting fiscal year 2024. We remain committed to delivering superior returns for our investors. And with that, Kevin, Jonah, and I will now take your questions.

Thank you. Our first question comes from Ken Herbert with RBC Capital Markets. You may proceed.

Hey, good afternoon, Wahid and Kevin and Jonah.

Good afternoon, Ken.

Hi, Ken.

Hey, nice end of the fiscal year, Wahid. I wondered if you could provide a little more granularity on the revenue guidance for fiscal '24. And specifically, can you comment on the implied assumptions for growth within sort of the current TMS and SUAS segments?

Thanks, Ken. Of course, our team did a fantastic job. Very proud of the achievements, especially given the challenges that we've had in the last quarter. A record year in terms of backlog, revenue, and strong results for fiscal '23. Most importantly, as you mentioned, it sets us up really well for fiscal year '24, with again another record-funded backlog and 78% visibility toward the midpoint of our guidance. In terms of growth, we expect both TMS and unmanned systems or SUAS product lines to have significant growth in the coming year. The demand for our systems and our products is broad across the board and not just in the United States, but also internationally. It's a pretty diversified set of customers, opportunities, and product portfolio that's driving and fueling our growth. We obviously expect to grow very significantly next year, close to almost $100 million on top of a very strong growth year. The other important thing to note is that the strong backlog and visibility is allowing us to level load the quarters, which allows us to have a roughly evenly distributed first half, second half, with the first half being slightly lower than 50%, but close to it, and the first quarter being almost 40% of the first half's revenue. All those things are a result of strong demand for our products across the market and a change in the paradigm. I see an inflection point here in the market where small unmanned systems as well as loitering munitions are really changing the way that the military thinks about getting prepared to defend themselves and fight wars in the future.

Yeah. Thanks, Wahid. I think you mentioned that you've got an approval now to sell the Switchblade into, I think, 50 countries. Can you just comment on actually how many countries you've been selling the system into? And what's the runway as you think about sort of capturing sales eventually into all 50 of those countries?

Sure. So, Ken, as I mentioned, we have orders so far that we have booked from four allied countries to date. However, the list has grown tremendously. The US DoD and the State Department has given us an approval to market and eventually sell to nearly 50 countries now. We're actively involved, and that's a very large increase, showing that there are a lot of countries that want this capability, and our track record and performance in Ukraine has demonstrated the capability and value of this system. So, I think over the next year or two, we're going to continue to increase the number of countries, and this business is set up for very healthy growth in the upcoming years.

Great. Thanks, Wahid. I'll pass it back there.

You're welcome, Ken.

Thanks, Ken.

Thank you. Our next question comes from Louie DiPalma with William Blair. You may proceed.

Wahid, Kevin, and Jonah, good afternoon.

Hi, Louie.

Hi there, Louie.

Wahid, at your Analyst Day, you discussed how you are working on the development of several new products, including a vertical takeoff and landing Puma, a VAPOR helicopter capable of carrying a small munitions payload, and also the Jackal turbojet air-launched loitering munition. Can you provide an update on the development of some of these new products?

Sure, Louie. That is very accurate. We have introduced several new products at our last Analyst Day. I'm pleased to report that we've started to ship some of those products to our customers and received orders for them as well. A portion of our future SUAS product line revenue will be based on these new enhancements and products that we're launching to the market. The feedback from our customers has been very strong. The VAPOR MX 55 that we just launched, an electrically powered helicopter, has demonstrated its capability to launch Switchblades off of it, which is a critical capability. The Jackal is a product we're partnering with Northrop Grumman for a specific opportunity with the US Army, a program of record named Long Range Precision Munition, LRPM. We're making solid progress, and it's a large program that we're going after. The Puma VTOL allows us to launch without runway and without hand launching them. These products, among many others, reflect our ongoing investment in the years ahead, particularly due to the rising demand for these systems from our customers. Additionally, we've been investing in AI, autonomy, and software analytics, allowing these systems to work in GPS-denied operations, enhancing our ability to find targets and conduct automatic target recognition. This technology positions us well against our competitors.

Thanks, Wahid. Kevin, you mentioned there were $230 million worth of TMS orders for fiscal 2023. Are you able to share roughly how much was related to the Switchblade 600, given that there's a lot of investor excitement over it? Investors are looking for data points regarding how that product is progressing. Thanks.

Thanks for the question, Louie. We don't really break out the orders or backlog by the specific products. I think both products have different markets, and we hope they both sell really well.

Yeah, and we have had very strong success so far with all three models of our Switchblade variants, including the Switchblade 300, Switchblade 600, and the Blackwing, which has been well-received within the US submarine community. We're feeling very good about the Switchblade 600. The market for that is large. We've shipped the product to our customers, and they're quite happy with it. We continue to increase capacity and production to meet the growing needs of our customers.

Sounds good. Thanks, Wahid, and thanks, Kevin.

Thank you, Louie.

Thank you, Louie.

Thanks, Louie.

Thank you. Our next question comes from Greg Konrad with Jefferies. You may proceed.

Good evening and nice quarter.

Thank you, Greg.

Thanks, Greg.

Hey, Greg.

Maybe just to start on TMS, you called out revenue doubling in the quarter and only being the start. How are you thinking about supply chain into fiscal year '24? And how is that balanced with demand and the ability to ramp? Does commentary around international impact profit mix within the segment going forward as those international awards ramp?

So, Greg, yes, we're very pleased with the progress we've been making on TMS. As I said, I consider this an inflection point for loitering munitions in general. Our loitering munitions product line is the most battle-proven product in the market. There's nothing out there that can match its track record and success and battlefield performance. Number two, we do expect significant growth in fiscal year '24 on TMS even though we had a very strong year last year, and our backlog is very, very strong for TMS, but that's just the beginning in my view. I think over the next several years, the TMS business is going to continue to grow. It's a multibillion-dollar market in my view worldwide. We haven't even addressed the market for air-launch effects, the capability of Switchblade to come off next-generation helicopters and fighter jets as well as from ground vehicles such as the Optionally Manned Fighting Vehicle. In terms of the lead times, that continues to be a slight challenge; the lead times for some of our products due to supply chain issues are longer than we would like. That does limit how much growth we can have this year versus next year. Nonetheless, we expect a very strong healthy growth this year, fiscal '24. We're very excited about the opportunities for growth in the coming years.

We think we have line of sight on the supply chain necessary to meet our guidance levels.

For this year, yes.

Yes.

And then we've seen advances around AI. I think you've called out a number of areas of progress. How do you think about monetizing that going forward, either through selling more systems or upgrade opportunities? Just trying to get a sense of what that can mean for the portfolio as that advances.

Sure. That's a really, really critical and important question, Greg. I'm glad you're asking it. I think there's a lot of hype in the market with many players claiming substantial capabilities in autonomy. AeroVironment has been somewhat quiet and humble in this area by actually developing the capability and ensuring we deliver in real-world applications. One of the first products we launched in this space is called the Puma Visual Navigation System. It's essentially a modular kit that can be installed on all our existing Puma systems, which allows the Puma to not rely on GPS signals and navigate independently. We have the ability to do a lot more in this area. Over the coming years, I expect continued growth in this capability with additional enhancements and product launches, both hardware and software. While our business is primarily made up of hardware and services, we expect it to evolve over time to include software as a selling item, whether through subscription or licensing depending on customer needs. I feel optimistic and have positive momentum in this area that sets us apart from competitors.

Thank you.

Thank you. Our next question comes from Jan-Frans Engelbrecht with Baird. You may proceed.

Good afternoon, Wahid, Kevin, and Jonah. I'm on for Peter today.

Good afternoon.

Good afternoon.

Hey, good afternoon.

I wanted to ask about the Switchblade 300. Can you give us an indication of where you sit in terms of the DoD replenishment? I know you initially sent 700 drones, with the majority being 300 variants. We just saw that $65 million order come in a couple of months ago. Can you sort of give us a sense of, has that fully been replenished? And we don't really know the full breakdown of how much France will be getting and also the other unnamed allied nation in that latest order.

So, Jan-Frans, thank you for that question. So far, we have not fully replenished the US DoD's inventory. There are a few dynamics happening there. Number one, we've delivered quite a lot of Switchblades to US DoD, who in turn has provided them to Ukraine forces. They've been very happy with them and are asking for more. We continue to do that. The process to replenish the US DoD is likely going to be more than a one-year process. We're working with the US DoD on several fronts to fulfill that need. They have exhausted their inventories, so we need to replenish them, and there is additional demand from several countries as well. As those countries grow and they use the product, I believe our Switchblade family will benefit and experience healthy growth in the next year and beyond. Overall, there will be demands from the Switchblade 300 and 600 variants, so I see a strong future for this product line.

Perfect. Thank you. That's really helpful. If I could just have a quick follow-up. Just in terms of the JUMP 20 system and the MUAS segment as a whole, 2024 wouldn't have had material revenue contribution from FTUAS, but sort of by all accounts, the JUMP 20 system has been highly durable, with a lot of hours flown. Can you just give us a sense of how you're thinking beyond 2024 for that system and the MUAS segment as a whole in terms of plugging the shortfall with FMS orders? It seems like there's a lot of interest from foreign nations. How do you see the trajectory for that segment and product in 2025 and beyond?

Absolutely, Jan-Frans. We remain very bullish on our Medium UAS category, the Group 2, 3 UAS. We fully respect our customer's decision regarding FTUAS, but we're asking them to provide more clarification as we're surprised by that outcome. We have several other potential international opportunities we're currently engaged in. Notably, the US DoD specifically selected JUMP 20 as the only Group 2, 3 UAV to provide to Ukraine, which speaks highly of its capabilities. The market for Group 2, 3 UAS is experiencing strong growth driven by ongoing global conflicts. We believe the JUMP 20 system has a significant addressable market and opportunities compared to other UAS markets, and we intend to capitalize on these future prospects. Overall, we will continue to invest and enhance our product capabilities, leveraging high customer demand and evolving market conditions.

Okay, great. Thanks for the detail. I really appreciate it. I'll jump back in the queue.

You're welcome, Jan-Frans.

Thank you. I would like to turn the call back over to Jonah Teeter-Balin for any closing remarks.

Thank you, and thank you once again for joining today's conference call and for your interest in AeroVironment. As a reminder, an archived version of this call, all SEC filings, and relevant news can be found on our website at avinc.com. We wish you a good evening and look forward to speaking with you again following next quarter's results. Thank you.

Thank you, everybody.

Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.